We have heard a great deal about the Brexit process since the referendum, but most businesses are still unclear about how it will affect them and how they should (or indeed whether they can) plan for the future.
We now know what the government’s objectives are (a “clean Brexit”), what the position of the EU27 is (no “cherry picking”) and what the process and broad timetable should be.
But there are three main areas of uncertainty: which of its objectives the government can achieve and what trade-offs each side will make during the negotiations; how the negotiations will be affected by political events, including UK and EU parliamentary votes and upcoming elections in France and Germany; and, when we get to the end of the negotiations, what happens next in terms of implementation and any transitional period.
The economic background is a little clearer than when we posted our last blog on this subject. Sterling has fallen by around 15% from pre-referendum levels on a trade-weighted basis. The fall in the exchange rate is driving up inflation, which can be expected to rise above the official 2% target. The labour market remains tight and skills shortages abound, so we expect greater pressures for wage increases in response to rising prices. Overall UK economic activity has held up well during 2016, mainly due to consumer spending, but the rise in inflation and elevated levels of consumer-credit means that consumption is unlikely to sustain the economy so strongly over the next year or two.
And then there is a new major external factor – the Trump presidency and its unpredictable impact on international relations, global trade and the global economy.
So what can you do plan for the period of change Brexit will inevitably bring when there are so many uncertainties?
Probably the best tool in these circumstances is scenario planning. Scenario planning can be a detailed, rigorous, laborious and lengthy process. But, in the case of Brexit, we think a less formalised approach will quickly give you the insights you need to prepare your business.
We recommend that you start by identifying possible outcomes for uncertainties (in the case of Brexit, one uncertainty is whether or not the UK remains a member of the customs union) and group these together to form a coherent scenario. Each scenario must be internally consistent – a plausible future reality. Next you reduce the number of scenarios to a manageable number of alternatives for analysis, perhaps 2 or 3, which, to be useful, should be markedly different. Then you need to work out in reasonable detail what each of these scenarios would mean for your business, including how your business could respond, what resources you would need, and how other market players (suppliers, customers and competitors) might react.
Having analysed and war-gamed the shortlisted scenarios, you should be able to identify a set of weaknesses, risks, threats and opportunities some of which may previously have been hidden. These can be classified by impact (from existential down to minor) and whether they arise in all scenarios or are scenario-specific. These insights should give you a clear set of priorities for de-risking and improving the ability of your business to deal with Brexit.
We can help you work through this scenario planning process and we recommend you start by taking one of our business health checks. A business health check will help you understand how your business is currently doing, what your main strengths, weaknesses, opportunities and threats are, and how prepared you are to face the impending challenges.
We’ve also set out some key Brexit-related questions to help start your planning. These should give you a better understanding of any immediate problems requiring attention.
We think that the best ways to face the challenges of Brexit are to map out and plan for all likely scenarios, keep your options open, and to maximise the agility, flexibility and adaptability of your business.
Click here to start a Company Pulse business health check.